Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Transcript 2022-Q2

[Anders Lenborg, executive]

[Audio Gap] second quarter 2022 presentation from Cloudberry Clean Energy. My name is Anders Lenborg, I'm the CEO of Cloudberry. And today, I'm joined by my colleague, our CVO, Christian Helland. We have prepared a presentation for you that we will go through, and we will also open up for questions after the presentation. [Operator Instructions]

The agenda today, I will start off giving you an overview of Cloudberry and some of the highlights from the last quarter, and then Christian will take over and run you through the key financials. And then we will finish off with a short outlook and summary.

Before we dive into the highlights and the financials, let me just give you a short introduction to Cloudberry. Cloudberry is a local Nordic IPP, independent power producer. We develop, own and operate renewable assets in the Nordics. We focus on hydropower and wind power.

And today, we have a portfolio of projects from very early greenfield projects up to producing assets. We believe it's important to have the development capacity in-house, so we can develop both wind, on- and offshore, and hydropower projects in-house in Cloudberry. Early this year, we also added a third section to the company, and we have now an operational team that operate all our producing assets as we speak.

We are a listed company on the main list of Oslo Stock Exchange under the ticker CLOUD.

And we are very happy to present some of the highlights here today. We have a strong performance. We have a strong performance when it comes to increased revenue of 7x on a consolidated basis. And we have also been able to grow the portfolio and the project portfolio.

The proportionate numbers you can see on the left side here and also the consolidated numbers. And this will also continue to grow over the rest of the year and the coming years.

As you can see, we have a very large merchant exposure. And we feel that the strategy of having this merchant exposure has been right for us over the last years. We have been growing the portfolio and growing the volume and we have also seen the power prices coming up from a lower level, and that's the main reasons why we have stayed merchant. And we will also have a part of the portfolio in the merchant spot market going forward. But you can also see that we will probably enter into PPAs or doing hedges on the portfolio, so to bring down the risk of the Production portfolio from the level of today.

On the project side, we have been able to now get both Skåråna hydropower plants on the grid. They have been finished for quite a while, but we had to wait for the grid connection, but has been concluded earlier this month. So now we have Skåråna on the grid and also Bøen, of course, Bøen I and II in operation and then we are working on a third power plant there with also a reservoir.

On the wind side, we have the shallow-water project in Vänern, 100 megawatt. And we are happy that we could enter into a binding term sheet with Hafslund being one of the largest utilities in the Nordics earlier this summer. So we are now in the middle of a due diligence period, but we will hopefully have Hafslund as a partner on our first shallow-water project.

Odal, we have erected and energized 32 or 34 wind turbines. Two of these turbines need some repairs. But we have seen the production now picking up through the summer. And just to brief -- or to back, we reached 100 megawatt in production. So this is moving along as reported.

On the Hån project, we have finished all the infrastructure, the foundations. We have the substation in place, tested and ready. And now Vestas is moving in with the cranes and all the parts for the towers and the cells. So first power from Hån we will have earlier -- sorry, later this year. But what's interesting is that the value creation of NOK 8 million to NOK 10 million per megawatt is significantly above what we have seen earlier. And this is based on a third-party evaluation on similar projects in SE3.

And then we also see at the Captiva is coming along very well. And we did a sale of a small hydropower plant earlier this second quarter, a nonstrategic asset. So that is partly the results on Captiva, but we have also seen new contracts, new customers coming in. And we are very happy to also have opportunity to be under the same roof as Captiva.

So when it comes to -- on the right side here, when it comes to the installed capacity, the production capacity, we still have the developed that we have reported on earlier, and we are in line with this development.

So to give you a short overview, this is the portfolio. We have been able to move the projects from the backlog to construction permits to production and growing both the backlog and the Production portfolio. We are very pleased to see that this is going as planned. As you can see in the yellow box, we have 4 wind assets with permits and we are looking to take investment decisions on all of these over the next year.

On -- or the key takeaways from this is the diversity of the portfolio. As you can see, we are in the south part of Norway and the southern part of Sweden. We think this is the right price areas for Cloudberry. We are close to the consumers. We are close to the interconnectors. And we have a good solid basis of new projects also in this area.

Yes. when it comes to the ESG, we have used the second quarter to go through the portfolio. We have tested all our projects, but also our producing assets to the taxonomy framework. So we have now 100% taxonomy eligible on the Production segment and the Development segment and we will report on this for 2022.

And in addition to this, we have a focus on the ESG and sustainability on all our projects. Here on the right side, you see the cable from our Swedish Hån wind farm to the Norwegian substation. So Hån is actually a wind farm that is producing out of Sweden, but we are selling the power in Norway. And here using existing roads and using as little of the nature as possible to make it as sustainable as possible. So we will continue to have this focus also going forward. And in general, we have no incidents and very low sick leave in Cloudberry over the last quarter.

And this slide, you have seen many times before. It gives you a nice overview of our portfolio, the producing assets here in dark blue. We have mostly hydropower. When you see to the light blue columns, there are two wind farms, Odal and Hån, that we have shortly touched upon. And at the end of this year, we will have those also dark blue. And it will create a balance to the portfolio, which have been heavy on hydro, but is going to be more balanced with the wind assets coming in and that giving also a better production profile through the autumn and the winter months.

So with this, I say thank you for your attention and I leave the word to Christian, and then we will come back to the outlook later. Thank you.

[Christian A. Helland, executive]

All right. Thank you, Anders. Yes, just to continue a little bit on this slide before we dive into the financials because I feel this explains very well how we ramp up our balance sheet and also how we see the production ramping up going forward.

So as Anders said, the Hån project and Odal we expect to have in production by -- full production by year-end. And the next one on the list is Kvemma, where we expect to have that and financially close it by 2024.

Then we have the 4 projects, Kvemma, Munkhyttan, Duvhällen and Stenkalles, all progressing very well. We see they're in attractive price areas. And as Anders said, we plan to take investment decision on these ones within 12 months.

We're also very pleased to join up with Hafslund. As we said before, we don't want too much risk in one single project. So we have done a binding term sheet with Hafslund to farm down 50% on the Stenkalles project and form a joint venture with Hafslund. So I will get a little bit back to that, but keep this picture in mind now when we move more into the balance sheet.

So as always, we've been focused on keeping a strong balance sheet to be able to take advantage of a growing portfolio. So we are focused on always being well capitalized, low degree of debt and a strong balance sheet with strong owners to take the growth in front of us and also be able to act on short-term possibilities that we see in the market.

As we see today, and Anders will also get back to it, we see large differences in the market. Extremely low power prices in the northern areas of the Nordics and extremely high prices in the South. So for us to have a balance sheet and to be able to act on this is very important.

We also see that the construction cost, upfront costs, of new projects have increased. Turbines, materials, shipping costs have driven up some on the cost side. On the other hand, we see that the long-term expected returns of our projects are strongly improved due to higher expected power prices and more demand for power. Depending, obviously, a little bit on the power prices and the revenue we create, but we have minimum funding for 270 megawatts and expect a long-term return on our existing portfolio to be significantly above the initial expectations.

It's also important to, here, we report the consolidated figures. Keep in mind that we also have Odal and Forte, who is associated companies. So in the bottom right, you see the proportionate figures. We will also report on the proportionate debt. So all debt we secured more or less all last year on low interest rate and fixed them on typically 10 to 20 years. The larger project in Forte is secured on 15 years and Odal about 20 years. So we have minimal interest or no interest risk on the existing portfolio. But obviously, on new projects, we closely monitor construction cost and interest rates and take that into consideration when we do investment decisions on the projects.

Yes. So very pleased that we're growing profitable, a good quarter for us. As planned, production is coming in. A lot more production is expecting in the second half of the year. But a combination of increased production, increased prices gives us favorable numbers. So as Anders mentioned, consolidated number, proportionate figures, both steadily growing. Production growing.

And we'll also -- here, we have shown that we -- obviously, the Production segment is the main revenue driver, but we'll also now show value creation from the Development segment and the Operational segment. So going forward, we will start reporting more detail on all these 3 segments.

To dive into the first segment, the Production segment. You see the revenue picking up significantly from last year, 5 and 7x what we reported last year. Again, we go from 27 gigawatt hours to 74 gigawatt hours. This is spread out over the portfolio. And we saw some questions coming in that, yes, very large differences. There's been more volumes of snow in the northern part of Norway where the price has been low, slightly -- or less in the south where the prices has been higher. But we're very pleased with delivering 74 GWh and especially now when Odal is picking up.

So the realized power price at NOK 1.01. Odal and Hån will produce into the southern areas, and these are large volumes that we expect to come in now in Q3, Q4. So the higher prices are in the South. We still have some of our production in NO-3 north of the [ Sandefjord ] mid part of Norway, which is leveling out the more -- higher prices in the areas.

In the report, you will also see a more breakdown. We get a lot of questions about this, about the breakdown between the different price areas. So you can read more carefully about that in the report.

Again, we want to emphasize that we have taken away the interest rate risk in 2021. And we continue the ramp-up of Odal and Forte.

The Development segment for us is, as Anders mentioned, early development in hydro, primarily in Norway, its development of wind in Central and South Sweden. But we also now are starting the development in Norway, which has not been so active on the wind side over the last years.

So here, you see there's been no transactions in Q2. However, we have done a transaction now in Q3 based on third-party valuations. And we see highly -- high degree of value creations for our in-house projects. NOK 8 million to NOK 10 million per megawatt hour, significantly higher than what we have said in the prospectus before about where we expected NOK 1 million to NOK 3 million per megawatt.

Hån is very favorable project. Its execution cost of that project we were able to secure turbines at relatively low levels. It's a good project with favorable wind conditions. And the expected power is also going to the Oslo region, which looks favorable going forward. So it's a combination of good execution and that the project is in the right area that gives us strong internal value creation for this project.

We also would see -- expect to see similar value creation for Munkhyttan, Kafjärden and so forth. But there, we don't -- will not -- again, we're still in the procurement process of these companies.

Also, subsequently, we agreed with Hafslund on selling 50% of Stenkalles. For us, it's been very important to work with a local -- to have a local project, working with a strong industrial owner who has experience and are also strong financially to back this project with us and do a joint venture. So we're very pleased to work with Hafslund as a joint venture to optimize the total economics. We will still own 50%. So it's a very important project for us. And also, this is the start for our further development into the Baltic Sea.

On the backlog side, we have taken out 1 wind project in Norway, but also gotten 2 very attractive new hydro projects that we're developing. Over time, we will give you more transparency into these 15 projects. And we also have earlier reported Björnetjärnsberget just on the southern area between Norway and Sweden of 100 megawatts, which is an important project for us in relatively midterm.

Operations segments. Captiva, we own the 60%. So we report here on our consolidated figures the 60% ownership. Starting to really get closely integrated in Cloudberry. Extremely happy with the competence they have both on hydro operations and construction within wind in Sweden. So really a good match for us to help us grow and also to have control since we plan to build 3, 4 projects in parallel.

So again, showing new contracts. The Portal now have more than 500 hydro plants. So big data from that. Benefits all small hydro owners here in the Nordics to see and improve on small-scale hydro operations over time. We're also very pleased to see that they get new contracts on the financial side and also for the larger European players, that's here in the Nordics, that needs advice and services.

Also, the operational intelligence leg in Captiva is very strong. So they've now got a grant also with the top research institute in Norway and then they have SINTEF to develop operational intelligence for small and mid-scale hydro. And also on regulation technique, TYDE will be very -- do preventive work and secure higher uptimes and also improve -- we expect it to improve efficiency of these plants over time.

So again, will benefit our portfolio, but hopefully also on the third-party operators of hydropower in Europe. So this will, over time, also be sold in Europe.

So I hope that gives a short summary before Anders dives into outlook and questions. Thank you.

[Anders Lenborg, executive]

Yes. Thank you, Christian. Moving on to the outlook. We have, on the right-hand side here, mentioned some of the drivers. What we feel is that we have a very strong governmental support, both in Europe. You see the EU having focus on speeding up the energy transition, speeding up the development of new renewable energy, REPowerEU with the go-to zones and so forth will hopefully then also bring more projects to the market and more production to the market faster.

The same we see in the Nordics. Both Sweden and the Norwegian governments are now focusing and prioritizing on getting more production, more renewable energy into the market.

So we see that we will have a higher demand in the Nordics. Historically, we have had very long -- low power prices. As you can see here on the left side, we have an average of EUR 33 over the last 10 years. If you take a longer look at it, it's even lower. So historically, we have had low power prices in the Nordics.

Going forward, we see that the third-party analyst here is our partner, Volue's price estimate, it's much higher. So even though it comes down after a couple of years, according to this Volue outlook, we will still have a higher price level in the Nordics going forward. This curve shows the system price in Norway.

And then -- but you will also see the same in the other Nordic countries. And also if you have the outlook from other suppliers of the power price forecasts, they are more or less in the same area as what you see here.

So it could be that we are now facing a shift in the power prices and that we will have a much more higher power price in the Nordics going forward. And this, of course, also has to do with the interconnectors out of Norway and Sweden and the capacity to export and also to import power from the continent.

But all in all, it's a very positive outlook for Cloudberry. And we think -- what we see is that baseload production is moving out, taking out of the market, Sweden with the phaseout nuclear power over some time. And that has to be compensated with a lot of new wind and other renewable sources. So all in all, we believe in a higher level -- price level going forward.

And so that was on the positive side. We also have -- we still feel that the commodity prices is an issue for us. Prices are rising on all type of commodities, and we see also issues with the supply chain. We try to plan, be better at also planning, have some buffers between the different sections of Development projects so we can have more flexibility. So on the Hån project, for example, so far, this has been working out very well. And now the -- coming into the wind farm or the towers and cells and so on, we hope that this will also be in operation as planned. But we can feel that there are issues on the supply chain side.

But higher commodity prices is also levered with higher power prices, as we just showed. So all in all, we have a positive view on the renewable sections and the renewable market in the Nordics.

Thank you so much. Then we -- that concludes our presentation, and we are going to get Christian to join me here and we are moving over to some of the questions that you have posted.

[Anders Lenborg, executive]

I saw that several questions was concerning the portfolio, the Production portfolio and the price areas. And how is this -- how does this play out in the different price areas?

What I can say is on the Cloudberry Production, there is a lot of NO-2 assets. When you look at the portfolio, they have a lot of production in NO-2 -- sorry, 5. And also when it comes to our cooperation with Akershus and KLP with Odal, of course, there's a lot of production in NO-1. And NO-1, NO-2 and NO-5 are also the price areas we believe is going to be strongest over the next years in Norway. And we think that then price areas 3 and 4 will pick up over time. So we also have some producing assets in NO-3 and 4. But this summer, we have stopped those assets because the power price have been too low.

On the Swedish -- in the Swedish market, we have focus on SE3. And the next projects -- all our next wind projects in Sweden will be in the SE3 area, but also -- we are also looking at projects in SE4 and SE2. So that is something that we are continuously looking at to build and get new project in these price areas.

[Christian A. Helland, executive]

Yes. As I see, Anders, we've got a lot of questions and that's fantastic. But Anders, you can maybe read -- I can take some of the financial questions while you take on the incoming questions here.

But to take some of the financial ones. Will there be [ core ] transactions in Q3? The answer is yes, we will do that. That's a -- we also got some other questions around that transaction. It's an internal transaction, but obviously based on conservative third-party estimates. So we will see significant value gains on the segment reporting in Development segment. It said here NOK 160 million to NOK 200 million, and that seems to be fair estimates.

We also had some questions on the balance sheet between the consolidated debt level and the proportionate debt level. And again, we prefer to show the proportionate because that also includes the debt -- our portion of the debt in Forte and Odal. So the figure of over NOK 900 million of total debt in a proportionate level include our 100% owned and also our proportionate share of the project finance Odal and Forte. All these interests, as we mentioned, are on fixed and long-term rates.

We also got a financial question about the nonstrategic sale in Captiva. It was a 1-megawatt plant that was too small for us. And also, we realized a gain of slightly over NOK 4 million on that based on the purchase price we had in January. So that shows good value creation in a short amount of time for a nonstrategic asset for us.

Anders, feel free to jump in. There are...

[Anders Lenborg, executive]

Yes. I see it's a lot of questions here. And one concerning the offshore portfolio -- or several concerning the offshore portfolio, the shallow water projects.

And yes, we are constantly working on the Stenkalles project, looking to take FID during this year. And we are now going into the next phase of that project, the procurement phase. And we are working on the different contracts on the marine side, on the foundations, on the turbine supply agreements and so forth. So that is moving along very nicely. And we are working very closely with our Dutch partners on that project, and now bringing also Hafslund into that project will be strengthening the team. So that is moving along according to plan.

And at the same time, our team in Gothenburg is working on the Baltic projects. And we will, during the next half year, inform the market of the next project. And we work now with the local authorities, with the grid companies to secure capacity and also to -- with other local stakeholders, so making sure that this project has the ability to be delivered over the next couple of years and so on.

We're working on the other projects also in the Baltic Sea, but we are focusing now on Stenkalles in Vänern and then the first Baltic project that we will inform the market more about later this autumn.

So that was one of the questions. Another question?

[Christian A. Helland, executive]

Yes. No, I'll jump in there. It was a very good question about how prices -- let me see, how does cash relate to production power prices? Can you say something about the split between variable and fixed cost of the production -- power production?

And this is a little complicated answer. It's, for us, as we mentioned, hydropower in Norway. We get the margin, as you see here, it's about 67% because we have a lot of hydro production now. There, we have certain profit-sharing agreements with the waterfall owners. So when power prices are higher, you will also see higher operational expenses. So the margins are, as you say, about 66% now.

We expect on the wind side when Odal and Hån comes in, that these margins are higher because there we have a fixed fee with the people owning the land of typically 4%. On hydro, it is, on certain agreements, more variable.

So that's why you see a little higher OpEx because the people owning the water rights in Norway get paid well when the power prices are high. And on the other side, we also have a defensive mechanism if the power price is low, that we pay very low for the fall rights. So this can obviously be explained in more detail, but shows a little bit of the dynamic in the portfolio.

[Anders Lenborg, executive]

I can move on to answer one of the other question is concerning Hån. And the question is, how does this work when having a power project in Sweden and we are importing the power to Norway?

And it's a good question. I don't think there's a lot of those assets around. But we have an export license from the Swedish government and an import license from the Norwegian government. And we own the cable. That's a separate company, but controlled by Cloudberry that own the cable from Sweden to Norway.

So the wind farm needs to be taxed after the Swedish rules when it comes to wind farms. And then we will pay grid fees, et cetera, when it comes to the export to Norway.

So it will be, let's call it, a hybrid Nordic project between Sweden and Norway where we will sell the power into the Norwegian grid and it's connected to the substation in Årjäng on the border to Sweden on the Norwegian side. So we are very, very happy with -- getting all these licenses in place.

[Christian A. Helland, executive]

Yes. So we'll try to wrap this up, but maybe a last question also about Kafjärden. We haven't written so much about it here, but it asked about the project. This is a project where it can reuse the foundation that's already in Kafjärden.

And the answer is yes, that's what we're working on. And just a short -- there's -- we buy this project for, depending on the last configuration of it, for about NOK 50 million if we get a larger case. And it's done already done about NOK 100 million of infrastructure investments in there. And the plan is to reuse a lot of this and have turbines fit to these existing foundations. So hopefully, we can update you on this in the coming quarters, but it's so far, so good.

[Anders Lenborg, executive]

Okay. So do a last question. Will the Norwegian politicians be successful in implementing measures drawing down the Norwegian electricity prices?

Well, we do see that the issue here is really that we will be in -- having too little power available. In 2025, 2026, we will have a deficit of power production. So we really need to get up the production levels. And that is really the problem. If we had more production, we could also probably drive down some of the prices. And I'm sure that this is something that will be prioritized in Norway. We see the same in Sweden. They are prioritizing new renewable assets. We see the EU has these go-to zones where you have maximum 1 or 2 years before you get the license.

So we feel that it's a lot of -- and the resources is there. Just looking at the small hydropower run-of-river hydropower, you have a 15, 16 GWh of new project that doesn't have concessions per now. We have upgrade of a large hydro, and of course, you have the wind power, both offshore and onshore. But I would think that the fastest way to more production is to do the onshore wind and the hydro projects in Norway and the onshore wind projects in Sweden. Yes.

[Christian A. Helland, executive]

Yes. Last one, just again, a lot of questions about Hån and it's internal. So on consolidated level, we won't report it, but it will be showing in the Development segment in Q3. So that's been, for us, a way to show that there is value creation in the Development segment. And these are, again, based on third-party reports. So that's, at least, to show that a lot of good work is being done in the Development segment.

[Anders Lenborg, executive]

I agree. Thank you so much for following us, and wish you all a nice day. Thank you.

[Christian A. Helland, executive]

Thank you.